The Razor's Edge

2-Year Price History

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

FTO Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, FTO the high and low end of the Price to Sales per share ratios are 0.65x and 0.31x respectively.

Notice that FTO's current Price to Sales per share ratio is 0.14x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $13.26, FTO is 72% below where we would expect to see it. This will beneficially factor into our final analysis of FTO as it is not often that this stock sinks to these levels.

FTO Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently FTO is significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from FTO. For example, FTO's Cash Earnings ratio per share has fluctuated between 5.82 and 11.38 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where FTO is with respect to prior business periods.

So with FTO's current price (latest close of $13.26) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, FTO is 65% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with FTO.

FTO Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In FTO’s case, the estimated annual dividend is $0.24 resulting in a current dividend yield of 1.81%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from FTO against the historic high and low levels over the past 10 years. The highest dividend yield from FTO over this period was 3.20% while the lowest dividend yield was 0.00% Therefore, the current dividend yield of FTO is above the historical median by 13.13%. This is definitely a positive in our view.